WASHINGTON - Despite reservations within the Clinton administration, the Senate Banking Committee appears likely to vote this month on legislation authorizing interstate branching and limiting bank insurance powers.

People familiar with the committee's plans say that Chairman Donald W. Riegle wants to take up insurance and interstate legislation during the third week of the month as the panel considers his fair trade in financial services bill.

The Michigan Democrat has made it clear lately, most recently in a speech to The Bankers Roundtable, that the interstate and insurance issues are firmly linked. "He said that was the package they are working on," said Anthony T. Cluff, president of the big bank trade group.

Opposition to Linkage

Most large banks would firmly oppose a bill that links the two issues, and that could doom interstate branching legislation - just as it did in 1991.

"Interstate is a second tier issue for me," said Citicorp chairman John Reed in a brief interview here last week. "Insurance is a high priority."

Mr. Reed applauded the Clinton administration for arguing last week that the two issues should be dealt with separately, but he conceded that it could be difficult for the Treasury to fend off the insurance lobby.

"I don't know if they can be kept separate," he said. "My political people tell me it would be tough."

Time Running Short

The Senate vote would likely come during the final days of this year's congressional session and could easily end up being postponed as lawmakers rush to deal with last-minute details.

In the past, the panel has supported both interstate branching and curbs on bank insurance powers. Most observers believe similar legislation would pass easily again this year.

By contrast, the House Banking Committee has shown a decided preference for keeping the two issues separate - in part to avoid jurisdictional disputes with rival committees. The House panel is unlikely to take up interstate branching this year.

Driving the process in the Senate is Christopher J. Dodd, D-Conn., a stalwart supporter of the insurance industry and a prime backer of interstate branching. Sen. Dodd recently wrote to a number of big bank chief executive officers, urging them to negotiate a bill.

Dodd's Exhortation

"I have urged Senate Banking Committee Chairman Donald W. Riegle, and he has committed, to hold a markup on an interstate/insurance bill in November," Sen. Dodd wrote. "I believe that the banking and insurance industries have a brief window of opportunity to reach a mutually beneficial agreement on these issues."

Among the banks getting the letter were the six superregionals that pressed for an interstate bill last year, including Nations-Bank, Fleet Financial Corp. and BankAmerica Corp.

Several industry sources said the bankers' response has followed the party line staked out recently by the American Bankers Association, the Consumer Bankers Association, and The Bankers Roundtable: Interstate and insurance should not be linked.

On the other hand, the administration may be able to make some inroads with one traditional interstate-branching opponent, the Independent Bankers Association of America.

Kenneth A. Guenther, the trade group's executive vice president, praised the administration's approach to branching, which requires banks to enter new states by buying a bank rather than simply opening a new branch on a de novo basis.

"That's terribly important for us," he said.

The administration also appears likely to grant small banks some relief from the Community Reinvestment Act, a step that would curry favor among Mr. Guenther's members.

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